Sadiq’s deal with the developers – The Affordable Housing and Viability SPG

You can see and download my full response to the consultation at the end of this post, but the main issues are summarised below.

Viability and affordable housing

The issue of affordable housing and viability has been around for a long time, and a lot has been written about it on this site.

Basically developers are able to get out of obligations to build affordable housing if they can demonstrate that doing so would make a development unprofitable, or financially unviable. All sounds reasonable enough, except that if something is unprofitable, maybe it shouldn’t be built in the first place.

Until now there has been very little guidance on how policies on financial viability should be implemented. What guidance does exist is written by the Royal Institute of Chartered Surveyors, a group of people who have a deep vested interest in ensuring the their clients (developers) can cream the maximum amount of profit at the public expense.

This policy gap has led to some extremely bad practice becoming commonplace in the development industry. The most pernicious has been developers’ insistence (which has been widely accepted by councils) that their economic data is subject to confidentiality.

What this means is that developers turn up to planning committees requesting that they be excused from building affordable housing, and no one, not even the councillors making the decision are able to see the evidence backing their claim.

The scope for abuse is obvious, and has not been lost on developers and the surveyors they hire to help them avoid affordable housing obligations.

Despite record profits for house builders, only 13% of new housing in London is classed as affordable, against a target in most boroughs of between 40-50%.

The Mayor’s new deal

A new policy on affordable housing and viability was therefore desperately needed. But after having got away with so much for so long, any tightening of the system was likely to be deeply unpopular with developers.

So what we have is a kind of proposed deal from the Mayor. Developers will have to be more transparent in their dealings with councils over economic viability, and in return the Mayor is imposing a cut in affordable housing obligations on the boroughs and allowing land owners to make bigger profits.

Although most boroughs have a policy which says 40-50% of new housing should be affordable, the Mayor is saying that only 35% will be required. That could also be further lowered in ‘opportunity areas’ which cover vast areas of London.

Whereas under previous planning practice, land owners should receive a minimum of the value of their land in its existing use +10%, now the Mayor is proposing to lift that to existing use +20% or 30%.

A bad policy

So will the deal work? I am deeply sceptical. The transparency provisions are very welcome, but I don’t think transparency alone will provide enough of an incentive for the development community to improve its behaviour. After all, you can’t shame the shameless.

There is a sharp financial incentive available for every affordable home developers can convert to a market property. In this context, will a developer settle for 35%, when they can try to get away with 20%, 10% or even zero? And make millions doing so.

An unlawful deal

There is a big question over whether the deal being attempted by the Mayor is even lawful. Planning is supposed to be about meeting objectively assessed need. You can’t negotiate how much affordable housing is demanded by a community, a community has a certain level of income and the demand is what it is.

The National Planning Policy Guidance is very clear that local planning policies must be arrived at through an independent assessment of local need.

The Mayor’s new affordable housing policy expressly does not do that. Instead, the 35% threshold was developed by looking at what had been achieved in previous development applications. It is the policy based on what developers have got away with in the past.

A better approach

A much better way of doing the whole process would be to flip the process on its head. Instead of a developer proving that their development proposal would be unprofitable with affordable housing included, they should be obliged to prove that any development proposal would be unprofitable with affordable housing included.

Affordable housing is essentially a profit cap for the developer. When a developer proposes an extremely expensive luxury development. A tower, designed by a starchitect, with high cost materials, then it is little wonder that affordable housing renders the project unaffordable.

However, that does not mean that an alternative, lower cost project would not be able to provide a more policy compliant development. But under the current system that is never considered. Instead, developers should be required to prove that their is no alternative development that would deliver more affordable housing, and councils should be able to challenge them on that point. I call this a site based viability assessment, rather than a scheme based assessment.

Conversations I have had with people at City Hall have revealed that the Mayor’s office are aware of this potential solution, but so far have been unwilling to consider it. They should think again.

Comments

Evidently, the London housing problem mounts up into an increasingly absurd agglomeration rather than begins to tend towards a more stable symmetry.
I would imagine that the real reason, if truth be told, that the Royal Institute of Chartered Surveyors have only provided a paltry modicum of guidance on how policies on financial viability should be implemented, is that if that guidance prescription were to be merely superficially scanned, it would show itself to be nought but a blatant apologia for the developers whose interests they ‘hand-in-silk glove so adroitly serve.
And just as the policy process has been overridden roughshod abusedly so has the usage of language. ‘Viability’, as it’s Latin origin tells us, implies that there is a ‘way’ through that can be reasonably mediated, and yet, there is not, unless you are the one and only developer who has secured the deal on your terms irrespective of others’ concerns. Many who have occupied even the terrain of disinterest in the housing issue have become appaled by the brazen and slapdash way the word, ‘affordable’ guiltlessly reverberates through the ongoing discourse. And, what so explicitly drives this point home, is the huge discrepancy between the actual figure of 13% secured London ‘affordable’ housing and the Councils’ targets of 40 to 50 %. If we will not be allowed to reclaim London as ours’ and everyone’s then we will at least endeavour to reclaim the integrity of our language. The word can be a very powerful tool, as well as a sensitive and gentle one tool. The truth should not be able to be bought. We still have our own human powers of discernment at our disposal, and this must always be able to exert influence.

This rather neatly dovetails with my story on alleged HMO developments in Hounslow. All those properties have been re-banded by the VOA as Band ‘A’ which sets their value at c.£40k as at 1991. We know that these are, in reality, 6 flats each which have been created inside the hollowed out former small family homes. Incredibly, the government counts these as ‘new homes’ in their annual figures and has done for since at least 2011. For each of these ‘new homes’ the relevant Local Authority receives a one-off bonus of £350 per unit plus six times the new council tax figure of c.£900 (in the case of Band A in Hounslow) per unit. Of course, they also get the uplift into the future. It’s called the New Homes Bonus (NHB). Obviously, cash-strapped Councils may not feel too enthusiastic about enforcing against unlicensed HMOs which have re-banded when they could perhaps be brought into the fold by other gentler means. Everybody wins except the tenants and the residents!

What’s to stop a developer from just creating a bunch of HMOs to fulfill his or her ‘affordable housing’ quotient?

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